Home' Trinidad and Tobago Guardian : February 2nd 2017 Contents FEBRUARY 2 • 2017 guardian.co.tt BUSINESS GUARDIAN
REGIONAL | BG21
What's at stake
in Trump's push
to rewrite or
President Donald Trump, en-
gaged in a diplomatic row with
Mexico, plans to shake up trade
across North America.
Trump is vowing to rewrite
the North American Free Trade
Agreement --- or pull out of it altogether. His
efforts are injecting worrisome doubts about
the future of business among the United States,
Canada and Mexico.
Here's what's at stake:
WHAT IS NAFTA?
Negotiated by President George HW Bush
and signed into law by President Bill Clinton,
NAFTA took effect on Jan 1, 1994. The trade
pact eliminated tariffs---taxes on imports---and
other trade barriers among the United States,
Canada and Mexico. The impact on some vul-
nerable US industries was delayed. Tariffs on
textiles and clothing, for instance, were phased
out only gradually. So were many trade barriers
in the auto industry.
Supporters said the agreement would pro-
mote trade and create jobs across a North
American single market. It would be, in other
words, a victory for everyone.
Critics countered that low-wage competi-
tion from Mexico would wipe out American
factory jobs. In 1992, US presidential candidate
Ross Perot famously predicted "a giant suck-
ing sound" as American jobs migrated south
across the border.
SO WHAT ACTUALLY DID HAPPEN?
Trade among NAFTA countries exploded.
But so did America's trade deficit with Mexico.
In 1993, the year before NAFTA took effect,
the United States had sold Mexico US$41.6
billion in goods and bought US$39.9 billion for
a trade surplus of US$1.7 billion. By 2015, the
US had exported US$235.7 billion in goods to
Mexico (a 467 per cent increase) and imported
US$296.4 billion (up 643 per cent). That cre-
ated a trade deficit in goods of US$60.7 billion.
It's a figure Trump has invoked to argue
that naive American policymakers had been
out-negotiated by their Mexican counterparts.
But the trade gap has widened partly because
American consumers are eager to buy relatively
low-priced cars and other goods from Mexico.
NAFTA's impact on the economy was more
modest than partisans on either side of the
debate had expected.
In part, that's because trade represents a sur-
prisingly small portion of the US economy---28
percent in 2015, according to the World Bank,
one of the lowest shares in the world. And trade
with Mexico is a smaller still portion.
The Congressional Research Service has
concluded that the impact of NAFTA on the
US economy "has been relatively small." The
Peterson Institute for International Economics,
a pro-free trade think tank in Washington, esti-
mates that the US loses about 203,000 jobs and
gains 188,000 annually" on account of two-
way trade with Mexico." That's a net loss of
15,000 jobs a year; a mere rounding error in a
country with 145 million jobs.
WHAT DOES TRUMP WANT TO DO?
The president has vowed to negotiate a better
NAFTA or to walk away from the agreement
if he can't get one. Adam Posen, president
of the Peterson Institute, says he thinks the
agreement should be updated to reflect, for
instance, the rise of the internet businesses
over the past 23 years ago.
Trump hasn't spelled out how he wants to
change the deal. But he clearly seeks to shrink
the trade gap with Mexico by reducing imports,
increasing exports or both. One likely target:
US, Japanese and other automakers, which
shipped more than $100 billion in autos and
auto parts from Mexico to the United States
After NAFTA, automakers began producing
small cars in Mexico and shipping them across
the border to the United States. Mexican auto
workers still earn less than US$10 an hour, al-
lowing manufacturers to keep small car prices
low; and affordable to US families on a budget.
But US and other companies have built com-
plicated supply chains that span the US-Mex-
ico border. Pulling out of NAFTA would throw
their operations into disarray. Although they
build cars in Mexico, US companies also do
a big business (US$30 billion worth in 2015)
shipping auto parts to Mexico.
The nonprofit Center for Automotive Re-
search estimates that the US would lose at
least 31,000 jobs if Trump went ahead with
his threat to impose a 35 per cent tax on Mex-
ican auto imports. AP
ENRIQUE PENA NIETO
IMF warns of challenging economic situation for Suriname
The International Monetary Fund (IMF) says Suriname is
in an economic crisis triggered by a significant commodity
terms of trade shock and exacerbated by insufficient buffers
and policy responses.
The IMF is warning that the economic outlook remains chal-
lenging and that for 2016, a gross domestic product (GDP)
contraction of nine per cent is projected, following a 2.7 per
cent contraction in 2015.
The Washington-based financial institution said that the
drop in international gold and oil prices and the cessation of
alumina production resulted in large fiscal and current account
deficits and the onset of a deep recession in 2015.
"During the boom, there was no institutional arrangement
to save resources for future price corrections, and implemen-
tation of IMF advice on strengthening the policy framework
was limited. Suriname has thus had a much sharper recession,
steeper exchange rate depreciation, and larger rise in inflation
and government debt than most commodity exporters."
It said that the authorities launched an ambitious adjustment
plan in late 2015 and that the Desi Bouterse government cut
the budget deficit by reining in spending, began phasing out
electricity subsidies, and curbed monetary financing.
"To facilitate the adjustment, and to support a rebuilding
of foreign reserves, the authorities floated the exchange rate
in March 2016 which, together with the tight fiscal stance,
reduced the current account deficit."
Suriname's adjustment efforts received support from the
international community in the form of a 24-month Stand-
By Arrangement (SBA) with the IMF approved in May 2016
as well as financing commitments from other international
The IMF said that by mid-2016, progress on a number of
policy items stalled.
It said the government kept the fiscal deficit below six per
cent of GDP and implemented a number of planned reforms,
including preparing for the introduction of a broad-based
value added tax (VAT).
"However, the decisions to freeze fuel pump prices and par-
tially reverse the increase in electricity prices led to significant
public sector losses. With limited action by the authorities to
raise interest rates, there has been a move out of local currency
assets, with bouts of exchange rate depreciation and a rapid
increase in inflation, which reached 77 per cent in September
2016. The first and second reviews of the SBA have not taken
The IMF says Suriname faces numerous challenges given a
severe recession, rising government debt, and high inflation
and that a return to macroeconomic stability and growth will
require decisive reforms.
In this regard, it is calling for redoubled efforts to put the fiscal
position on a sustainable track, reduce inflation, strengthen
the financial sector, and stimulate private investment to foster
sustainable and inclusive growth.
The IMF has emphasised that fiscal consolidation should
be at the centre of the policy efforts.
"Achieving a primary surplus by 2018 is needed to put public
debt on a downward path and avoid monetary financing," the
IMF said, welcoming the authorities' intentions to eliminate
energy subsidies in 2017, fully reinstate fuel taxes, and imple-
ment the VAT in 2018.
The IMF said there is need to refrain from large wage increas-
es, and to launch a broad-based reform of the civil service.
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